CARES Act: “Maintaining the resilience of our Federal contracting base”In the wake of the COVID-19 pandemic response, government contractors have experienced varying degrees of work disruption. As highlighted recently by the Office of Management and Budget (OMB), “Federal contractors play a vital role in helping agencies meet the needs of our citizens, including the critical response efforts to COVID-19.” OMB noted that (1) safety, (2) continued contract performance in support of agency missions, as well as (3) “maintaining the resilience of our Federal contracting base” are important governmental goals during the COVID-19 pandemic.

Part of maintaining the federal contracting base’s resilience includes ensuring contractors can keep working, and if not, that contractors do not go out of business due to COVID-19 related work disruptions. In furtherance of this goal, OMB outlined measures in its March 20, 2020, memorandum concerning the management of federal contract performance issues, such as maximizing telework and virtual work environments, providing flexibility through performance extensions, and considering requests for equitable adjustment (or REAs) to cover allowable and reasonable costs to “protect the health and safety of contract employees as part of the contract.”

The OMB policy memorandum — which encourages federal procurement officials to “feel fully empowered to use the acquisition flexibilities, as needed” — is not the only resource available to contractors. Congress, through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), included relief to federal contractors, including payments to some contractors that are prevented from working due to COVID-19 related safety measures. Specifically, section 3610 of the CARES Act provides:

Notwithstanding any other provision of law, and subject to the availability of appropriations, funds made available to an agency by this Act or any other Act may be used by such agency to modify the terms and conditions of a contract, or other agreement, without consideration, to reimburse at the minimum applicable contract billing rates not to exceed an average of 40 hours per week any paid leave, including sick leave, a contractor provides to keep its employees or subcontractors in a ready state, including to protect the life and safety of Government and contractor personnel, but in no event beyond 9/30/2020. Such authority shall apply only to a contractor whose employees or subcontractors cannot perform work on a site that has been approved by the Federal Government due to facility closures or restrictions, and who cannot telework because their job duties cannot be performed remotely during the public health emergency for COVID-19 [emphasis added].

The authority provided through this provision of the CARES Act permits contracting officers to pay contractors even when they are not performing, although when this authority applies and can be utilized will require a case-by-case analysis.

  • First, the authority only applies to (1) employees of a contractor or subcontractor who cannot perform due to facility closures or restrictions and (2) who cannot telework. In this connection, contractors should be proactive in pursuing the ability to telework, in accordance with the OMB memorandum policy discussed above, and adequately document measures taken in this regard.
  • Second, the authority is not mandatory and is subject to an agency’s discretion. Again, contractors should be proactive in communicating with their contracting officials and in documenting the efforts taken to perform through disruption. If contractors have attempted to negotiate the ability to perform through OMB’s flexible policy recommendations, but still cannot perform as described in the CARES Act, they may be more persuasive in convincing an agency to provide “ready state” reimbursement under section 3610.

The relief provided through OMB guidance and the CARES Act is welcome news to the many federal contractors who are experiencing contract disruption. This potential relief, however, is not guaranteed. Navigating the application of the guidance and the CARES Act as they relate to specific contract terms will take a thorough understanding of the contract in question and applicable law. And, even then, a contractor will have to rely on the government’s discretion and goodwill to obtain actual compensation, which heightens the importance of maintaining strong relationships with government representatives on your federal projects.

If you have any questions about the topics discussed in this article, please feel free to contact Aron Beezley or Nathaniel Greeson.

Defense Production Act: Key Provisions and TakeawaysOn March 18, 2020, President Donald Trump signed an Executive Order invoking and delegating the authorities of the Defense Production Act (DPA) to the secretary of the U.S. Department of Health and Human Services (HHS) to provide critical health and medical resources to respond to the spread of the novel coronavirus pandemic (COVID-19). On March 27, 2020, the president further directed HHS to utilize the DPA authorities to compel General Motors (GM) to manufacture ventilators. Under the DPA authority, HHS can compel businesses to prioritize the production and supply of health and medical devices and equipment. These authorities apply equally to those that currently do business with the government, as well as those that never have. Manufacturers and producers of health and medical devices and equipment, including ventilators, masks, gloves, and other personal protective equipment, should familiarize themselves and their employees with the president’s executive order and the obligations they may face under the DPA.

Overview

A declaration of emergency affecting the national defense is necessary to invoke the DPA. Over time, Congress has broadened the definition of “national defense” from purely military purposes to also encompass domestic preparedness, response, and recovery from natural hazards, terrorist attacks, and other national emergencies, such as the COVID-19 emergency declaration. The DPA authorities encompass military and energy production or construction, critical infrastructure construction or repair, homeland security, and stockpiling, and have been utilized more recently by civilian agencies in support of anti-terrorism activities and natural disaster response.

The president’s March 18 executive order only invokes the DPA authorities under Title I, Priorities and Allocations, though, depending on the development and severity of the pandemic and the government’s response, other DPA authorities (discussed below) may be invoked. The Executive Order also includes a finding that personal protective equipment and ventilators meet criteria to be considered “scarce and critical material essential to the national defense” under the DPA.

Title I permits the government to compel companies to provide the government with materials and services deemed necessary for the national defense and establishes a priority system for such orders. Under this Title I authority, the government may prioritize and allocate services and materials by mandating certain contracts, overriding competing contracts, and by directing the allocation of materials, services, and facilities. The recent Executive Order specifically authorizes the government to determine proper nationwide priorities and allocation of all health and medical resources, including controlling the distribution of such materials to combat the spread of COVID-19.

The president’s March 27 memorandum to HHS, instructing the agency to utilize the invoked DPA authorities to compel GM to accept, perform, and prioritize a government ventilator contract, illustrates the Title I priority system.

The prioritization system will be regulated by HHS using the process described at 45 C.F.R. § 101. The HHS system is comprised of “rated orders” which compel manufacturers and suppliers to fulfill the order, even if it means rescheduling the fulfillment and delivery of other non-rated orders. The effect of a rated order flows down the entire supply chain. That is, businesses that receive a rated order must in turn place rated orders with their subcontractors and suppliers to ensure expedited delivery of materials, components and supplies needed to fulfill a rated order. There are few exceptions to complying with a rated order, and willful failure to perform a rated order is considered a criminal violation that subjects those involved in the violation of up to one year of imprisonment and a fine of up to $10,000. Exceptions include:

  • If the contractor is unable to fill the order by the specified date, it must inform the customer of the earliest date on which delivery can be made and offer to accept the order on the basis of that date;
  • If accepting a rated order would interfere with delivery of any previously accepted rated orders, the contractor must offer to accept the order based on the earliest delivery date otherwise possible;
  • If the business placing the order is unwilling or unable to meet regularly established terms of sale or payment;
  • If the order is for an item not supplied or for a service not capable of being performed;
  • If the order is for an item or service produced, acquired, or provided only for the supplier’s own use for which no orders have been filled for two years prior to the date of receipt of the rated order. If, however, a supplier has sold some of these items or provided similar services, the supplier is obligated to accept rated orders up to that quantity or portion of production or service, whichever is greater, sold or provided within the past two years;
  • If the business placing the rated order, other than the U.S. government, itself already makes the item or performs the service being ordered;
  • If acceptance of a rated order or performance against a rated order would violate any other regulation, official action, or order of the HHS issued under the authority of the DPA or another relevant statute.

The DPA, however, does exempt businesses from liability for damages or penalties for any actions taken to comply with governing rules, regulations and orders, including third-party liability over production delay (even orders later declared legally invalid). Note, these limitations on liability do not provide blanket tort immunity for liability to injured third parties or immunity from Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) liability or antitrust liability.

In addition to DPA Title I authorities, other relevant DPA authorities that may be invoked include:

  • Title III, Expansion of Productive Capacity and Supply, allows the government to provide incentives and financial support to the domestic industrial base to create or expand the production and supply of critical materials and goods. The incentives and financial assistance can include loans, loan guarantees, direct purchases and purchase commitments, and the authority to procure and install equipment in private industrial facilities; and
  • Title VII,General Provisions, authorizes establishment of voluntary agreements with private industry. It also provides authority to (1) block proposed or pending foreign corporate mergers, acquisitions or takeovers that threaten national security, (2) employ persons of outstanding experience, and (3) establish a volunteer pool of industry executives and experts to advise or serve the government.

If additional authorities such as Title III incentives or financial support are invoked, they will likely require an additional executive order, or an amendment to the March 18 Executive Order. Under the invoked Title I authorities, the exercise of the government’s DPA authorities may take on other forms of executive action, including HHS priority setting, or instructions from the White House, such as the president’s March 27 memorandum to HHS concerning the GM ventilator contract.

Conclusion

Businesses that manufacture, produce, or supply personal protective equipment or ventilators should start preparing their employees and relevant teams for the possibility of receiving a rated order. Similarly, businesses that supply essential health and medical devices or equipment other than those specifically named in the Executive Order should also prepare for the possibility of expanding the scope of included products or DPA authorities utilized. Businesses that receive rated orders will have a very short response time in which they must accept or reject those rated orders. It is important to understand your rights and responsibilities regarding rated orders and the legal consequences of failure to perform. Understanding the implications of the Executive Order invoking DPA authorities will help affected businesses position themselves to respond accordingly.

If you have any questions about the DPA or any related issues, please feel free to contact Aron Beezley or Nathaniel Greeson.

CISA Updates Guidance on Essential Critical Infrastructure Workers; More States Issue Stay-at-Home OrdersOver the weekend, the Cybersecurity & Infrastructure Security Agency (CISA) issued updated guidance expounding on its classification of workers who are essential to the nation’s critical infrastructure viability during the COVID-19 crisis. As discussed in our previous alert and blog post, CISA has identified 16 key infrastructure sectors that should continue operations to protect U.S. health and public safety and economic and national security. While CISA’s updated guidance remains non-binding, companies would be wise to consider how it may influence “stay-at-home” orders in their local jurisdictions.

As an initial matter, CISA’s updated guidance clarifies that beyond being “advisory in nature” it is “not intended to be the exclusive list of critical infrastructure sectors, workers, and functions that should continue during the COVID-19 response across all jurisdictions.” The updated guidance stresses, “Individual jurisdictions should add or subtract essential workforce categories based on their own requirements and discretion.” In other words, even if a specific type of worker or service is not mentioned by CISA, states and municipalities are free to declare that such workers and services are “essential” and exempt from stay-at-home orders. That said, many stay-at-home orders, such as Maryland’s recent order, almost entirely rely on CISA’s guidance to distinguish between “essential” and “non-essential” businesses. Other jurisdictions will likely continue to reference CISA’s evolving guidance as they both implement and amend their stay-at-home orders.

One of the biggest changes to CISA’s updated memorandum is a heavier emphasis on the construction and manufacturing industries. Residential construction and home building are now explicitly included. CISA also specifies the essential role of construction workers supporting the renewable energy, petroleum and natural gas, and communications sectors, among others. The updated guidance further recognizes “builders” and “contractors” necessary to maintaining “the safety, sanitation, and essential operation” of “businesses and buildings such as hospitals, senior living facilities, [and] any temporary construction required to support COVID-19 response.” Lastly, CISA makes provision for “workers who support the supply chain of building materials from production through application/installation.”

Other highlights of the updated CISA guidelines include identification of workers in all segments of the energy and fuel sectors (including nuclear, hydroelectric, renewable, coal, and gas), as well as the mining and onshore/offshore drilling industries. The new guidance also recognizes such diverse industries as residential and commercial real estate, hygiene and sanitation, firearms and ammunition, e-commerce, and dependent care services “in support of workers in other essential products and services.”

Since CISA updated its guidance, multiple new orders have been issued by various states and local governments, including Maryland, Tennessee, Virginia, and Washington, D.C. Each order contains its own definition of what types of businesses are “essential.” More states and local governments are expected to continue issuing new or amended orders in response to coronavirus concerns. Companies included within CISA’s updated memorandum would be wise to carefully review CISA’s guidelines — subject to statewide or local stay-at-home orders — and adapt their staffing and business decisions to ensure they continue to perform essential functions and thus remain open.

It is also important to be proactive. Companies and industries may need to engage government officials and key decision-makers to ensure that business operations are deemed “essential.” Even if such operations are not currently deemed “essential,” there may be opportunities to seek a waiver. Additionally, many of these orders will likely be amended, and there may be an opportunity to seek inclusion in a subsequent amendment.

Bradley can advise on how these determinations may apply to your business and how best to comply with them. The Governmental Affairs and Construction practice groups are actively monitoring developments in this area and engaging with federal, state, and local governments on behalf of clients to help ensure their businesses are considered essential. Please contact Ryan Robichaux, Chris Selman, or Jackson Hill if you have any questions or would like to discuss the COVID-19 policy process.